Question

MC Qu. 15 The accompanying tables give production possibilities... The accompanying tables give production possibilities data for Gamma and Sigma. All data are in tons. Gamma's production possibilities A B C D E Tea 120 90 60 30 0 Pots 0 30 60 90 120 Sigma's production possibilities A B C D E Tea 40 30 20 10 0 Pots 0 30 60 90 120 On the basis of this information, Multiple Choice Gamma should export tea to Sigma, but it will not be profitable for the two nations to exchange pots. Gamma should export both tea and pots to Sigma. Gamma should export tea to Sigma, and Sigma should export pots to Gamma. Sigma should export tea to Gamma, and Gamma should export pots to Sigma

Answer 1

Gamma should export tea to Sigma, and Sigma should export pots to Gamma.

Explanation:
Opportunity cost of 1 unit of tea for Gamma = Pots given up/Tea produced = 120/120 = 1 pot
Opportunity cost of 1 unit of tea for Sigma = Pots given up/Tea produced = 120/40 = 3 pots
So, Gamma has a comparative advantage in tea because of lower opportunity cost and thus it should specialize in tea and should export tea to sigma. Similarly, Sigma will specialize in pots and should export pots to Gamma.